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  #1  
Old October 3rd, 2008, 05:23 PM
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Question Who decides how much new money to issue/print?

and what is the criteria?
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Old October 4th, 2008, 01:36 AM
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Re: Who decides how much new money to issue/print?

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Originally Posted by tantric_yogi View Post
and what is the criteria?
Of course, government of the concerned country....time to time IMF warns a particular country to print/not to print more money (can force an economy to devalue its currency(if under pegged rate system) if it prints more).

Printing money has many repercussions...... so it is not a good idea to print more money to pay off one's debts... but can be a useful tool to use the under-utilised resources.

If govt decides to print more money....then it increases the supply of money in circulation (M3 or broad money in most countries)....which leads to increase in purchasing power of citizens....which means more money chasing the same amount of goods... Inflation hits the market.... on international scenario...the value of currency drops.... affects the exchange rate....

There are more tools to increase/decrease the money supply(known as contractionary or expansionary measures under open market operations) in the market other than minting more coins....

This is an interesting time for financial world....recently Ireland insured its bank deposits and debts.... govts across the world are losing faith in laissez-faireism....
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Old October 4th, 2008, 04:40 AM
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Re: Who decides how much new money to issue/print?

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Originally Posted by chitrala View Post
Of course, government of the concerned country....time to time IMF warns a particular country to print/not to print more money (can force an economy to devalue its currency(if under pegged rate system) if it prints more).

Printing money has many repercussions...... so it is not a good idea to print more money to pay off one's debts... but can be a useful tool to use the under-utilised resources.

If govt decides to print more money....then it increases the supply of money in circulation (M3 or broad money in most countries)....which leads to increase in purchasing power of citizens....which means more money chasing the same amount of goods... Inflation hits the market.... on international scenario...the value of currency drops.... affects the exchange rate....

There are more tools to increase/decrease the money supply(known as contractionary or expansionary measures under open market operations) in the market other than minting more coins....

This is an interesting time for financial world....recently Ireland insured its bank deposits and debts.... govts across the world are losing faith in laissez-faireism....
It is not so straightforward. For example, Federal Reserve in USA is a cartel of banks
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Old October 4th, 2008, 07:57 AM
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Re: Who decides how much new money to issue/print?

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Originally Posted by dhurandhar View Post
It is not so straightforward. For example, Federal Reserve in USA is a cartel of banks
I was generalising.....it differs from country to country....depends upon their banking system......economic policies... economy's situation....
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Old October 4th, 2008, 08:11 AM
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Re: Who decides how much new money to issue/print?

so how does it work for India?
also how does fake currency impact this? More of a problem for India where the helpful neighbours pump in a lot of fake money...
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Old October 5th, 2008, 05:25 AM
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Re: Who decides how much new money to issue/print?

Another relevant excerpt from Tragedy and Hope, that might give some perspective

In July 1914, the military men were confident that a decision would be reached in six months because their military plans and the examples of 1866 and 1870 indicated an immediate decision. This belief was supported by the financial experts who, while greatly underestimating the cost of fighting, were confident that the financial resources of all states would be exhausted in six months. By "financial resources" they meant the gold reserves of the various nations. These were clearly limited; all the Great Powers were on the gold standard under which bank notes and paper money could be converted into gold on demand. However, each country suspended the gold standard at the outbreak of war. This removed the automatic limitation on the supply of paper money. Then each country proceeded to pay for the war by borrowing from the banks. The banks created the money which they lent by merely giving the government a deposit of any size against which the government could draw checks. The banks were no longer limited in the amount of credit they could create because they no longer had to pay out gold for checks on demand. Thus the creation of money in the form of credit by the banks was limited only by the demands of its borrowers. Naturally, as governments borrowed to pay for their needs, private businesses borrowed in order to be able to fill the government's orders. The gold which could no longer be demanded merely rested in the vaults, except where some of it was exported to pay for supplies from neutral countries or from fellow belligerents. As a result, the percentage of outstanding bank notes covered by gold reserves steadily fell, and the percentage of bank credit covered by either gold or bank notes fell even further.
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Old October 5th, 2008, 10:09 AM
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Re: Who decides how much new money to issue/print?

One more



The Currency Dictator of Europe


This power of the Bank of England and of its governor was admitted by most qualified observers. In January, 1924, Reginald McKenna, who had been chancellor of the Exchequer in 1915-1916, as chairman of the board of the Midland Bank told its stockholders: "I am afraid the ordinary citizen will not like to be told that the banks can, and do, create money.... And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people." In that same year, Sir Drummond Fraser, vice-president of the Institute of Bankers, stated, "The Governor of the Bank of England must be the autocrat who dictates the terms upon which alone the Government can obtain borrowed money." On September 26, 1921, The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills." Vincent Vickers, who had been a director of the bank for nine years, said, "Since 1919 the monetary policy of the Government has been the policy of the Bank of England and the policy of the Bank of England has been the policy of Mr. Montagu Norman." On November Il, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of Europe." This fact was admitted by Mr. Norman himself before the court of the bank on March 21, 1930, and before the Macmillan Committee five days later.

Montagu Norman's position may be gathered from the fact that his predecessors in the governorship, almost a hundred of them, had served two-year terms, increased rarely, in time of crisis, to three or even four years. But Norman held the position for twenty-four years (1920-1944), during which he became the chief architect of the liquidation of Britain's global preeminence.
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Old October 5th, 2008, 05:24 PM
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Re: Who decides how much new money to issue/print?

Politicians decide.
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Old October 5th, 2008, 08:57 PM
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Question Re: Who decides how much new money to issue/print?

Who decides how much of new money to print today, this week, this month or this year? There must be a criteria.

As an exampel ... cannot be that Soniye phones local mint ... hey, today I will need ten thousand rupees ... start printing 1000 hundred rupee notes ... call me when finished. Perhaps in Africa and some parts of Asia ... not among financially responsible governments in the world.

Basis?
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Old October 6th, 2008, 10:58 AM
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Re: Who decides how much new money to issue/print?

Quote:
Originally Posted by tantric_yogi View Post
Who decides how much of new money to print today, this week, this month or this year? There must be a criteria.

As an exampel ... cannot be that Soniye phones local mint ... hey, today I will need ten thousand rupees ... start printing 1000 hundred rupee notes ... call me when finished. Perhaps in Africa and some parts of Asia ... not among financially responsible governments in the world.

Basis?
In INDIA RBI in Conjunction with finance ministry decides.
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Old October 6th, 2008, 07:02 PM
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Re: Who decides how much new money to issue/print?

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Originally Posted by tantric_yogi View Post
and what is the criteria?
Great question. Only central banks are givent the authority to print money. Printing currency is only part of the story. Printed money can multiply itself through credit creation, which is done by commercial banks. The amount of credit commercial banks are allowed to create are predicated upon the reserve ratio...which is typically 1:10. So, for ever $1 of deposit, commercial banks can make $10 of loans. Banks rarely issue physical currency for big transactions (e.g. home mortgages). The behind-the-scenes transactions of the checks are all done through interbank lending and through the commercial paper market.
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